The president of Canadian-based DBRS Inc., a rival to the big three credit rating firms, accused the Federal Reserve on Thursday of effectively shutting smaller rating firms out of the U.S. securitization market.

In prepared testimony before the Senate Banking Committee, Daniel Curry complained that asset-backed securities are eligible to participate in the Fed's new Term Asset-Backed Securities Loan Facility only if they receive a AAA-rating from Standard & Poor's, Moody's or Fitch.

"No explanation has been given for the creation of this new sub-category of registered credit rating agency," Curry said. "The result of this is that DBRS ... has been deemed unqualified to rate TALF-eligible securities, even though several issuers have asked it to do so."

"The harmful effects of limiting rating agency competition under the TALF are profound, because for the foreseeable future, the TALF is likely to be the entire securitization market in the United States," he added.

In 2006, Congress passed a bill aimed at promoting more competition in the rating industry, improving transparency and curbing conflicts of interest. Following the passage of that bill, the Securities and Exchange Commission approved some rules to implement the legislation.

But since the financial crisis, some critics have called for expanding the SEC's authority beyond the scope of the bill because they say the firms gave overly generous ratings to certain types of debt.

Canada's DBRS has been officially designated by the SEC as a nationally recognized statistical rating organization. That designation, Curry noted, should make his company eligible to rate securities for TALF.

Curry said he is trying to persuade the Fed to end its "discriminatory policy."

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com